- 1 Debt Consolidation Pros and Cons – the Good News
- 2 Debt Consolidation Pros and Cons – the Bad News
Gulf Street Advisors is the ugly secret of the debt consolidation industry.
Gulf Street Advisors, Brice Capital, Old Dominion Associates, Sooner Partners, and Memphis Associates have been flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers.
Are you falling deeper and deeper into debt? If yes, then you should then think about getting opting for debt consolidation services to avoid paying higher debt charges and facing bankruptcy. But before you jump in, you should be fully cognizant of debt consolidation pros and cons.
If you are trying to investigate debt consolidation pros and cons, then you are not alone. In fact, you are in good company considering that consumer debt is now well above $14 trillion. It is probably safe to say that countless consumers are looking for debt relief options besides you. So there is no need to be disheartened.
Here are the debt consolidation pros and cons you should be looking at.
Debt Consolidation Pros and Cons – the Good News
Easier Debt Management
Easier debt management is a possible advantage with debt consolidation. Since debt consolidation works by combining all of your loans into one sum, payment can be less stressful. You only need to pay one amount instead of multiple payments each month.
If you have a good deal on your hands, then you can enjoy a lower average interest rate for all of your debts combined. Your chance of getting a lower interest rate depends on the negotiation skills, your credit score and the willingness of your creditors to cooperate.
The possibility of a low apr loan stands out as one of the key debt consolidation pros and cons. Of course, there is the possibility that you may not necessarily benefit from a lower interest rate. There are also many debt consolidation companies, such as Union First Funding, offering unrealistic low-interest rates to lure you in
Better Credit Card Utilization
Credit card utilization is a key factor for your credit score. With debt consolidation, you can bring down your credit card balances and thus improve your credit utilization ratio. As you continue to pay off your debts, the balances on your cards will go down and thus the credit utilization ratio will also decrease. Your credit score will go up as a result.
Thus, you could build up your credit score if you rigorously follow the payment schedule of your debt consolidation plan. This is another one of the major debt consolidation pros and cons to know about.
Debt Consolidation Pros and Cons – the Bad News
You Still Need to Change Your Financial Habits
A debt consolidation loan is not a magical elixir for your financial ailments. It will not change your financial habits – the very factors that led to high debts in the first place.
For debt consolidation to work, you will have to make serious changes to your financial habits. Inculcate good habits like spending less and saving more. Make sure that you read extensively about good financial habits to build motivation and know how its done.
You may have to approach a debt counseling agency for helping you with your financial habits. They can reach out to you and counsel you on building safe financial habits. They will have likely helped many others before you and could benefit you if you cooperate.
The financial knowledge that you gain thus could help to extricate you from your current predicament. You will, of course, have to pay extra for the counseling service.
As explained above, a good debt counseling agency can help you to acquire better financial habits. But even with such a program in place, you should still carry out your own research to discover more ways of strengthening your financial position.
Could Hurt Your Credit Score
If you successfully negotiate more lenient terms with your creditors, they will most likely report it to credit bureaus. This will go into your credit record.
If you miss your payments, then this will take a toll on your credit score. But if you pay rigorously according to schedule, this will eventually improve your credit score.
Fees and Scams
You need to look out for hidden fees and charges. Make sure that you read the agreement in full to ensure that you are signing up for a good deal. Ask about anything that is not clear. Read the fine print and make sure that you know each and everything about the agreement.
To keep your fees down it is advisable to opt for nonprofit debt consolidation firms. You should also do your research to find out about their service quality, customer satisfaction, and success rate.
And beware of scams. As with all other legit businesses, there are scams in debt and finances. Some of these scams may be subtle and not so obvious. But they can end up hurting you nevertheless if you miss them. Watch out carefully for old tricks like the fine print, the nebulous language in the contract, and vague conditions that appear ambiguous. To mitigate the risk of scams, avoid commercial services. Besides, nonprofits often charge lower fees.
Waste of Time
Time is of the essence. When you sign up with a credit card relief firm, they may request you to stop paying creditors till negotiations end. But these negotiations can go on for weeks without any resolution or results. Creditors are not obliged to cooperate with debt consolidation. In fact, they could have a policy of avoiding all interactions with such firms. This is a major drawback among debt consolidation pros and cons that warrants attention.
If the negotiation phase provides no results, you can end up suffering big hits to your credit score, piling interest and a bigger possibility of a lawsuit from creditors – all for nothing.
Failure to Secure a Lower Interest Rate
The prime benefit of debt consolidation is to lower the interest rate. Besides your luck, it largely depends on your credit score, your debt consolidation firm’s tactics and the willingness of your creditors to offer leeway.
Without a lower interest rate, debt consolidation is largely futile. This is another major pitfall to think about when mulling over debt consolidation pros and cons.
To understand fully about debt consolidation pros and cons with respect to your unique situation, it is better to approach a financial advisor for guidance.